|
|
Extended Auto Warranties |
| What are extended warranties? Do I need one? Understand
what they're all about before purchasing one. Is the extended auto
warranty only for new cars, or is it for used cars also? Find out
here. |
Buying a car? You may be encouraged to buy an extended warranty to
help protect against unexpected, costly repairs. While it may sound
like a good idea, don't buy in until you understand both the terms
of the contract and who is responsible for providing the coverage.
A service contract is a promise to perform (or pay for) certain repairs
or services. Sometimes called an "extended warranty," a service contract
is not a warranty as defined by federal law. A service contract may
be arranged at any time and always costs extra; a warranty comes with
a new car and is included in the original price.
The separate and additional cost distinguishes a service contract
from an auto warranty.
Before deciding whether to buy an auto service contract, ask these
questions:
Compare service contracts with the manufacturer's warranty before
you buy. New cars come with a manufacturer's warranty, which usually
offers coverage for at least one year or 12,000 miles, whichever comes
first. Even used cars may come with some type of coverage.
You may decide to buy a "demonstrator" model - a car that has never
been sold to a retail customer but has been driven for purposes other
than test drives. If so, ask when warranty coverage begins and ends.
Does it date from when you purchase the car or when the dealer first
put the car into service?
Ask who performs or pays for repairs under the terms of the service
contract. It may be the manufacturer, the dealer, or an independent
company.
Many service contracts sold by dealers are handled by independent
companies called administrators. Administrators act as claims adjusters,
authorizing the payment of claims to any dealers under the contract.
If you have a dispute over whether a claim should be paid, deal with
the administrator.
If the administrator goes out of business, the dealership still may
be obligated to perform under the contract. The reverse also may be
true. If the dealer goes out of business, the administrator may be
required to fulfill the terms of the contract. Whether you have recourse
depends on your contract's terms and/or your state's laws.
Learn about the reputation of the dealer and the administrator. Ask
for references and check them out. You also can contact your local
or state consumer protection office, state Department of Motor Vehicles,
local Better Business Bureau, or local automobile dealers association
to find out if they have public information on the firms. Look for
the phone numbers and addresses in your telephone directory.
Find out how long the dealer or administrator has been in business,
and try to determine whether they have the financial resources to
meet their contractual obligations. Individual car dealers or dealer
associations may set aside funds or buy insurance to cover future
claims. Some independent companies are insured against a sudden rush
of claims.
Find out if the auto service contract is underwritten by an insurance
company. In some states, this is required. If the contract is backed
by an insurance company, contact your State Insurance Commission to
ask about the solvency of the company and whether any complaints have
been filed.
Usually, the price of the service contract is based on the car make,
model, condition (new or used), coverage, and length of contract.
The upfront cost can range from several hundred dollars to more than
$1,000.
In addition to the initial charge, you may need to pay a deductible
each time your car is serviced or repaired. Under some service contracts,
you pay one charge per visit for repairs - no matter how many. Other
contracts require a deductible for each unrelated repair.
You also may need to pay transfer or cancellation fees if you sell
your car or end the contract. Often, contracts limit the amount paid
for towing or related rental car expenses.
Few auto service contracts cover all repairs. Indeed, common repairs
for parts like brakes and clutches generally are not included in service
contracts. If an item isn't listed, assume it's not covered.
Watch out for absolute exclusions that deny coverage for any reason.
For example:
- If a covered part is damaged
by a non-covered component, the claim may be denied.
- If the contract specifies
that only "mechanical breakdowns" will be covered, problems caused
by "normal wear and tear" may be excluded.
If the engine must be taken apart to diagnose a problem and it is
discovered that non-covered parts need to be repaired or replaced,
you may have to pay for the labor involved in the tear-down and re-assembling
of the engine.
You may not have full protection even for parts that are covered in
the contract. Some companies use a "depreciation factor" in calculating
coverage: the company may pay only partial repair or replacement costs
if they consider your car's mileage.
When your car needs to be repaired or serviced, you may be able to
choose among several service dealers or authorized repair centers.
Or, you may be required to return the vehicle to the selling dealer
for service. That could be inconvenient if you bought the car from
a dealership in another town.
Find out if your car will be covered if it breaks down while you're
using it on a trip or if you take it when you move out of town. Some
auto service contract companies and dealers offer service only in
specific geographical areas.
Find out if you need prior authorization from the contract provider
for any repair work or towing services. Be sure to ask:
- how long it takes to get
authorization.
- whether you can get authorization
outside of normal business hours.
- whether the company has
a toll-free number for authorization. Test the toll-free number
before you buy the contract to see if you can get through easily.
You may have to pay for covered repairs and then wait for the service
company to reimburse you. If the auto service contract doesn't specify
how long reimbursement usually takes, ask. Find out who settles claims
in case you have a dispute with the service contract provider and
need to use a dispute resolution program.
If this concerns you, ask. Some consumers are disappointed when they
find out "reconditioned" engines are being used as replacement parts
under some service contracts. Also ask whether the authorized repair
facility maintains an adequate stock of parts. Repair delays may occur
if authorized parts are not readily available and must be ordered.
Under the contract, you may have to follow all the manufacturer's
recommendations for routine maintenance, such as oil and spark plug
changes. Failure to do so could void the contract. To prove you have
maintained the car properly, keep detailed records, including receipts.
Find out if the contract prohibits you from taking the car to an independent
station for routine maintenance or performing the work yourself. The
contract may specify that the selling dealer is the only authorized
facility for servicing the car.
If the service contract lasts longer than you expect to own the car,
find out if it can be transferred when you sell the car, whether there's
a fee, or if a shorter contract is available.
If you're told you must purchase an auto service contract to qualify
for financing, contact the lender yourself to find out if this is
true. Some consumers have had trouble canceling their service contract
after discovering the lender didn't require one.
If you decide to buy a service contract through a car dealership -
and the contract is backed by an administrator and/or a third party
- make sure the dealer forwards your payment and gives you written
confirmation. Some consumers have discovered too late that the dealer
failed to forward their payment, leaving them with no coverage months
after they signed a contract. Contact your local or state consumer
protection office if you have reason to believe that your contract
wasn't put into effect as agreed.
In some states, service contract providers are subject to insurance
regulations. Find out if this is true in your state. Insurance regulations
generally require companies to:
- maintain an adequate financial
reserve to pay claims.
- base their contract fees
on expected claims. Some service providers have been known to
make huge profits because the cost of their contracts far exceeds
the cost of repairs or services they provide.
- seek approval from the
state insurance office for premiums or contract fees.
To report contract problems with a service provider, contact your
local and state consumer protection agencies, including the state
insurance commissioner and state attorney general.
If you need help resolving a dispute, contact the Better Business
Bureau, the state attorney general, or the consumer protection office
in your area. Also, contact law schools in your area and ask if they
have dispute resolution programs. |
|
